Nonprofit Financial Hub

Pouncing on Overlooked Nonprofit Market, New Grays Peak Fund to Offer Low-Cost Loans (with B Generous)

Alternative-investment shop Grays Peak Capital is on the cusp of launching a private lending vehicle that will focus on nonprofits, a market vastly underserved by traditional lenders. The New York firm – in partnership with B Generous, an online lending marketplace for nonprofits – will manage the investments within the new fund, Grays Peak Impact Credit Fund. B Generous will steer potential borrowers to the offering, for which Grays Peak seeks to raise $100 million. Grays Peak is aiming for a 12% to 15% annual return for the fund, which carries a three-year lockup. The firm plans to originate senior-secured loans, ranging from $500,000 to $3.5 million, with maturities of one to three years and interest rates of 9% to 13%. Grays Peak says those rates are far lower than what nonprofits typically pay for similar-sized loans. Borrowers would secure loans with pledges of future donations, grants, earned income, payments and assets, with some loans additionally backed by real estate.

Among Grays Peak’s investment criteria: nonprofits must be in operation for at least two full calendar years and have more than $250,000 in annual revenue for the trailing 12-month period (or have at least $500,000 in net assets). Grays Peak plans to avoid organizations that have filed for bankruptcy protection in the past 24 months, that have material judgments against them in the past two years or that are the subject of pending or existing litigation.

As part of its underwriting, Grays Peak will assess the quality of a borrower’s revenue mix, scrutinizing earned income vs. grants, for instance, along with operating performance, surplus and deficit trends and key leverage metrics including debt levels, current assets relative to liabilities, and net assets to debt.

Grays Peak contends the nonprofit market is massive and presents a widely overlooked opportunity for investment. The 1.8 million nonprofits in the U.S. represent 15% of U.S. gross domestic product and generate about $3.3 trillion in income annually, according to the hedge fund shop.

The U.S. Bureau of Labor Statistics notes that in 2022, nonprofits accounted for 12.8 million jobs, or about 10% of private-sector employment. If the U.S. nonprofit sector were its own economy, it would be the fifth-largest in the world, according to the Tax Foundation, a nonprofit that monitors U.S. tax policy.

Yet nonprofits are often excluded from traditional credit markets, with more than 90% unable to secure loans from mainstream financial institutions, according to Grays Peak. The largest banks – Wells Fargo, J.P. Morgan and Bank of America, for instance – lend to nonprofits, but most nonprofits do business with community banks, which rarely lend to that group, Grays Peak says.

In addition, the firm says, the biggest banks focus their lending on the largest 2% to 3% of nonprofits in the U.S. As a result, Grays Peak says, most loans begin at $5 million, disqualifying 97% of nonprofits, which raise less than that amount per year.

Finally, real estate accounts for the vast majority of collateral that large nonprofits put up for sizable bank loans, but nine of 10 nonprofits don’t own property.

Grays Peak argues traditional lenders don’t have a deep understanding of how nonprofits derive their revenues or how nonprofit finances work in general. Most people think nonprofits generate the bulk of their revenue from donations, while Grays Peak maintains that 81% of nonprofit funding comes from earned income. Donations account for just 10%.

As a result of those market dynamics, only about 3% of nonprofits can access traditional credit in the U.S. today, according to Grays Peak.

Still, nonprofits often require loans to get them through periods of delayed grants and donation shortfalls to pay rent and payroll and to perform the functions they’re set up to do.

Grays Peak would target nonprofit schools, after-school sports programs and food programs, for example.

B Generous, itself a nonprofit headquartered in Los Angeles, serves as an online hub for nonprofits to locate capital. It facilitates financing ranging from $100,000 to $50 million, secured against future revenue streams.

Since launching in 2024, B Generous has approved more than $70 million of $1 billion in loan requests.

Scott Stevens founded Grays Peak in 2015 following stops at notable firms. At JAT Capital, Stevens oversaw a $1 billion portfolio of technology, media and telecommunications stocks. He also has worked at Coatue Management, Ivory Capital, Strata Capital and Point72 Asset Management predecessor SAC Capital.

Grays Peak runs private equity, private credit and venture capital strategies. The firm, which has invested some $400 million over the past 16 months or so, is separately raising capital for a specialty-finance fund, Grays Peak Private Credit 2, that targets government contractors.

That offering launched in October with an undisclosed sum from co-investors. An initial close is expected in the next week or so.